The Real Bottom Line
Stanley A. Marash, Ph.D.
As part of its quality training
and consulting responsibilities, my company asked thousands
of senior executives and their subordinates from around
the world, "What percent of your work day is spent
on nonvalue-added activities?" Although individual
responses ranged from as low as 10 percent to as high as
90 percent, the average lies between 40 and 60 percent,
indicating that upper management spends about half its time
performing tasks such as responding to crises; reading unwanted
mail, memos, e-mail, etc; following up on problems; recovering
from problems; rereading already-edited documents (for the
second, third or fourth time); and attending rerun meetings
(for the second, third or fourth time) that take too long
and don't result in action.
If we extrapolate this--which is always risky--we can
infer that most companies contain twice as many people,
offices, desks, computers and phones as they really need
to run effectively and efficiently.
How have we allowed this level of waste to exist for so
long? One reason is that the companies to which we compare
ourselves often operate just as inefficiently; thus, benchmarking
doesn't always produce an incentive to improve. Unfortunately,
companies from other industries or countries might be managing
this problem much more effectively and, in the process,
taking away our business.
Effective change management must improve a company's financial
profile. It does this by eliminating, or at least significantly
reducing, sources of nonvalue-added activities and focusing
resources on improving products and services.
Recent exercises in so-called "downsizing" or
"rightsizing" responded to excesses that have
existed for decades. However, these painful cutbacks caused
severe crises in many companies because they reduced staff
without eliminating the source of the problem: excessive
nonvalue-added efforts. In fact, downsizing increases nonvalue-added
costs, due to the extra responsibilities put on the remaining
Nonvalue-added time is responsible for a significant part
of the nonquality cost all companies face. Most manufacturing
companies equate product scrap cost with nonquality cost,
but they completely ignore wasted time as a significant
factor. In fact, many components of nonquality cost are
strategically buried in a company's standard cost system.
For example, if 50 percent of a person's time is spent
on nonvalue-added activities, then it takes two people,
two desks, two computers, two telephones--literally two
of everything--to do the job that one person should be able
to do. Hence, finance has created a system that says, in
effect, $2 equals $1. As long as we continue to spend this
inflated $2 on every task, there's no perceived problem.
The standard says we should be spending $2, and the variance
reports confirm that, indeed, we're spending $2. Unfortunately,
as Joseph M. Juran would say, we've disconnected the alarm
signals, so nobody takes any action.
Crises tend to manifest themselves when nonquality cost
approaches some larger value--say $3 or more rather than
the anticipated $2. In these cases, most companies would
view a return to the $2 cost as an improvement; it's actually
only a return to the inefficient status quo. Real improvement
occurs only when we reduce the $2 to closer to $1.
In most companies, management systems haven't been planned
and designed. Instead, they've simply evolved, with new
procedures, practices and forms to meet each new situation.
Often, this approach comes at customers' expense.
The change management concept can be thought of as a variant
of quality assurance, assuming that the term is regarded
in its broadest sense. Quality system designs are the products
Determining customer needs and wants
Converting customer needs and wants into a product or service
Establishing process and product specifications that, when
met, result in a product or service that satisfies customer
needs and wants
Reducing process variability to exceed customer expectations
Continual improvement is the process of making incremental
improvements from $2 to $1, the real cost. Although we might
not know a process's true cost, effective continual improvement
will move us toward the goal.
Many people working on teams have asked me, "What
will we do when we solve all our problems?" In response,
I usually introduce the concept of "breakthrough."
The real $1 cost is predicated on the specifics of a company's
current design. Breakthrough occurs by getting "out
of the box" (i.e., changing raw materials, service
models, process flows and methodologies) in order to achieve
results representing order-of-magnitude returns on current
products or services. This approach requires that companies
provide continual feedback on improvements so that the next
version of their product or service--or their new product--shows
the benefits of what the companies have learned. This is
Stanley A. Marash, Ph.D., is chairman and CEO of The SAM
Group, which includes STAT-A-MATRIX Inc. and Oriel Inc.
This article is adapted from Marash's upcoming book, Fusion
Management. Note: Fusion Management is a trademark of STAT-A-MATRIX
Inc. ©2002 STAT-A-MATRIX Inc. All rights reserved.
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